6. STOCK‑BASED COMPENSATION

Equity Incentive Plans

In 2016, the Company's board of directors (the "Board") adopted, and its stockholders approved, the 2016 Equity Incentive Plan, as amended (the "2016 Plan"), which provides for the granting of options at the discretion of the Board or any subcommittee of the Board to its employees, officers and independent contractors. Under the terms of the 2016 Plan, options may not be granted at an exercise price less than fair market value of the Company's common stock on the date of the grant.

In May 2019, the Company’s Board adopted the 2019 Equity Incentive Plan (“2019 Plan”), which was subsequently approved by its stockholders and became effective on May 13, 2019. As a result, no additional awards

under the 2016 Plan will be granted and all outstanding stock awards granted under the 2016 Plan that are repurchased, forfeited, expired, or are cancelled will become available for grant under the 2019 Plan in accordance with its terms. The 2016 Plan will continue to govern outstanding equity awards granted thereunder.

The 2019 Plan provides for the issuance of incentive stock options (“ISOs”) to employees, and for the grant of nonstatutory stock options, stock appreciation rights, restricted stock awards, restricted stock unit awards, performance stock awards, performance cash awards and other forms of stock awards to the Company’s employees, officers, and directors, as well as non- employees, consultants, and affiliates to the Company. Under the terms of the 2019 Plan, stock options may not be granted at an exercise price less than fair market value of the Company’s common stock on the date of the grant. The 2019 Plan is administered by the Compensation Committee of the Board.

Initially, subject to adjustments as provided in the 2019 Plan, the maximum number of the Company’s common stock that may be issued under the 2019 Plan is 4,530,000 shares, which is the sum of (i) 1,618,841 new shares, plus (ii) the number of shares (not to exceed 2,911,159 shares) that remained available for the issuance of awards under the 2016 Plan, at the time the 2019 Plan became effective, and (iii) any shares subject to outstanding stock options or other stock awards granted under the 2016 Plan that are forfeited, expired, or reacquired. The 2019 Plan provides that the number of shares reserved and available for issuance under the 2019 Plan will automatically increase each January 1, beginning on January 1, 2020, by 5% of the outstanding number of shares of common stock on the immediately preceding December 31 or such lesser number of shares as determined by the Board. Subject to certain changes in capitalization of the Company, the aggregate maximum number of shares of common stock that may be issued pursuant to the exercise of ISOs shall be equal to 13,000,000 shares of common stock. Stock options awarded under the 2019 Plan expire 10 years after grant and typically vest over four years.

As of September 30, 2025, there were 6,919,818 shares of common stock available for issuance under the 2019 Plan.

Stock-Based Compensation Expense

Total stock‑based compensation expense recorded for employees, directors and non‑employees:


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
(in thousands)	2025		2024		2025		2024
Research and development	$	425	$	951	$	2,023	$	2,907
General and administrative		716		1,140		2,706		3,453
Total stock-based compensation expense	$	1,141	$	2,091	$	4,729	$	6,360

Stock Option Activity

During the nine months ended September 30, 2025, the Company granted 1,200,000 stock options. For the three months ended September 30, 2025 and 2024, amortization of stock compensation of options amounted to $0.3 million and $0.4 million, respectively. For the nine months ended September 30, 2025 and 2024, amortization of stock compensation of options amounted to $1.4 million and $1.6 million, respectively. As of September 30, 2025 and 2024, the total unrecognized stock‑based compensation expense for unvested options was $1.5 million and $0.7 million, respectively, which is expected to be recognized over 1.9 years and 1.2 years, respectively. The weighted‑average fair value of options granted during the nine months ended September 30, 2025 was $0.49. There were no stock options granted for the nine months ended September 30, 2024.

The following table summarizes the information about options outstanding at September 30, 2025:


						Weighted-Average
				Weighted-		Remaining
				Average		Contractual		Aggregate
	Options Outstanding			Exercise Price		Term (in years)		Intrinsic Value
Outstanding at December 31, 2024		6,460,004		$	1.74		4.72	$	—
Options granted		1,200,000			0.49
Options exercised		—			—
Forfeited		(2,599	)		1.05
Expired		(35,464	)		1.05
Outstanding at September 30, 2025		7,621,941		$	1.54		4.53	$	143,880

Exercisable at September 30, 2025		4,427,837		$	2.06		1.06	$	10,245
Nonvested at September 30, 2025		3,194,104		$	0.83		9.34	$	133,635

The aggregate intrinsic value is calculated as the difference between the exercise price of all outstanding and exercisable stock options and the fair value of the Company’s common stock at September 30, 2025. The intrinsic value of stock options exercised during each of the three and nine months ended September 30, 2025 was zero. The total grant-date fair value of stock options vested during each of the three and nine months ended September 30, 2025 was $0.1 million. The total grant-date fair value of stock options vested during the three and nine months ended September 30, 2024 was $0.1 million and $0.2 million, respectively.

Valuation of Stock Options Granted

The fair value of each option award granted is estimated on the date of the grant using the Black-Scholes option valuation model based on the weighted-average assumptions noted in the table below for those options granted in the three and nine months ended September 30, 2025. There were no options granted for the three and nine months ended September 30, 2024.


	Three Months Ended	Nine months ended
	September 30,	September 30,
	2025	2025
Expected term (in years)	—	5.77 - 6.08
Volatility	—%	98.05% - 118.5%
Risk-free interest rate	—%	4.15% - 4.19%
Dividend yield	—%	—%

Restricted Stock Unit Activity

During the nine months ended September 30, 2025, the Company granted 2,869,000 restricted stock units (“RSUs”). For the three months ended September 30, 2025 and 2024, amortization of stock compensation of RSUs amounted to $0.8 million and $1.7 million, respectively. For the nine months ended September 30, 2025 and 2024, amortization of stock compensation of RSUs amounted to $3.2 million and $4.8 million, respectively. As of September 30, 2025 and 2024, the unamortized compensation costs associated with non-vested restricted stock awards were $6.4 million and $17.8 million, respectively, with a weighted-average remaining amortization period of 2.6 years.

The following table summarizes the information about restricted stock units outstanding at September 30, 2025:


				Weighted-Average
				Grant Date
	Shares			Fair Value
Outstanding at December 31, 2024		4,109,752		$	3.16
Awarded		2,869,000			0.49
Released		(1,259,899	)		3.13
Forfeited		(201,373	)		5.87
Outstanding at September 30, 2025		5,517,480		$	1.76
Nonvested at September 30, 2025		4,830,398		$	1.49

2019 Employee Stock Purchase Plan

In May 2019, the Company’s Board and its stockholders approved the 2019 Employee Stock Purchase Plan (the “ESPP”), which became effective as of May 13, 2019. The ESPP is intended to qualify as an “employee stock purchase plan” within the meaning of Section 423 of the U.S. Internal Revenue Code of 1986, as amended. The number of shares of common stock initially reserved for issuance under the ESPP was 180,000 shares. The ESPP provides for an annual increase on the first day of each year beginning in 2020 and ending in 2029, equal to the lesser of (i) 1% of the shares of common stock outstanding on the last day of the calendar month before the date of the automatic increase and (ii) 360,000 shares; provided that prior to the date of any such increase, the Board may determine that such increase will be less than the amount set forth in clauses (i) and (ii). As of September 30, 2025, 74,789 shares of common stock had been issued under the ESPP. The first offering period commenced on November 15, 2024.

Under the ESPP substantially all employees may voluntarily enroll to purchase shares of the Company’s common stock through payroll deductions at a price equal to 85% of the lower of the fair market values of the stock as of the beginning or the end of the each six-month offering period. An employee's payroll deductions under the ESPP are limited to 15% of the employee's compensation, and an employee may not purchase more than $25,000 worth of stock during any calendar year. As of September 30, 2025 a total of 1,672,302 shares of the Company's common stock were available for future issuance under the ESPP. For the three and nine months ended September 30, 2025, amortization of stock compensation of the ESPP amounted to $28,000 and $0.1 million, respectively. As of September 30, 2025, the unamortized compensation costs related to the ESPP was $0.1 million with a weighted-average remaining amortization period of 0.26 year.

Valuation of ESPP Granted to Employees

The fair value of each ESPP award is estimated on the date of the grant using the Black-Scholes valuation model based on the weighted-average assumptions.

Applied Therapeutics, Inc. 10-Q